Parliamentary Question: Singapore-dollar denominated shares and bonds

Issues Raised in Parliament

ANSWER TO PARLIAMENTARY QUESTION ON:
Singapore-dollar denominated shares and bonds

For Parliamentary Sitting on 17 Jan 2000

Questions:

To ask the Deputy Prime Minister what are the pros and cons of allowing (i) foreign companies to list their shares in Singapore dollars and (ii) unrated foreign corporations and sovereigns to issue Singapore-dollar denominated bonds.

Answer:

1. In 1998, MAS revised its guidelines on the non-internationalisation of the Singapore dollar (S$) to make it easier for foreign companies to list their shares in S$. The aim was to attract foreign companies to list in Singapore to add depth to our capital market. As a precaution, MAS required the foreign companies listing in S$ to have least 20 percent of their revenues, profits or expenses attributable to their Singapore operations. But few foreign companies came, as most of those eligible to list have little or no operations in Singapore. While they could still list here in foreign currencies, not many were interested in doing so, because foreign currency listings generate less trading interest than S$ shares.

2. Therefore, in November 1999, MAS lifted the 20 percent requirement, and allowed foreign companies to list their shares in S$ on the Singapore Exchange (SGX), provided they met SGX's listing requirements. However, they had to keep the S$ proceeds from the share issue with a bank in Singapore, and convert them into foreign currency before using them outside Singapore.

3. In 1998, MAS also revised its guidelines to allow foreign entities of good credit standing to issue S$ denominated bonds, provided they swapped the S$ proceeds into foreign currency. This has boosted the development of the Singapore bond market. It provided a greater variety of debt papers to investors, in addition to the traditional Singapore government and Singapore based corporate issuance. So far, a total of S$3 billion of foreign bond issues have been launched.

4. Industry players have fedback to MAS that further widening the range of instruments allowed would offer investors more opportunities to diversify their holdings. Thus MAS announced in November 1999 that it would allow foreign companies and sovereigns, both rated or unrated, to issue S$-denominated bonds. For unrated bonds, the investor base is restricted to sophisticated investors¹.

5. There are indeed risks when Singaporeans buy bonds issued by unrated foreign entities. For bonds that are rated by internationally reputable and independent rating agencies, investors have the benefit of their analyses to guide their decisions. While some unrated issuers are indeed financially strong, investors at large may not have the benefit of independent analyses to aid them in their decision making. Also, such issuers are not necessarily subject to internationally accepted disclosure rules. Investors must therefore do their own homework to make an informed decision. That is why we have decided to restrict the sales of unrated bonds to sophisticated investors. These are investors and corporations who have high net worth or incomes, and who should be able to make their own financial decisions with fewer constraints.

6. The changes to the equity and bond markets will bring more international participation in our capital markets, adding depth and critical mass. Listings of foreign companies increase the capitalisation and turnover of Singapore's stock market, expand the universe of investible stocks to investors, and attract more research analysts, fund managers and underwriters to base here. For the bond market, the changes will broaden the credit spectrum of foreign entities tapping the Singapore bond market. A vibrant bond market in Singapore will provide corporations here and in the region with another efficient avenue to raise funds, on top of bank borrowings and equity issues. It will help Singapore to develop as an international financial centre.

7. The thrust of our policy on the non-internationalisation of the S$ is to prohibit non-residents from borrowing S$ for activities which are unrelated to the Singapore economy. This could lead to the build-up of a pool of S$ abroad, potentially jeopardising the effective management of our exchange rate. To minimise this risk, we have maintained our requirement that the S$ proceeds raised by foreign companies, either through a share listing or a bond issue, be converted into foreign currency before they can be used outside Singapore.

8. We have assessed the potential impact of the above changes to our effective management of the S$ exchange rate. While they may make the S$ exchange rate more volatile, MAS has assessed that the movements could be managed. These initiatives will make Singapore more attractive for foreign companies to tap our capital market, while strong economic fundamentals, sound policies and ample reserves should enable us to withstand any market fluctuations.

¹ Defined in the Companies Act (Cap 50) as an individual whose total net personal assets exceed S$1m or its equivalent in foreign currencies or whose income in the preceding 12 months is not less than S$200,000 or its equivalent in foreign currencies; or a corporation whose total net assets exceed S$5m in value or its equivalent in foreign currencies as determined by the last audited balance sheet of the corporation.